Check Your CIBIL Score Now for Free and Get Your Credit Report Online Instantly Check Now

A loan settlement is an arrangement between the borrower and the bank. It allows for a one-time settlement when genuine issues like job loss or health crises hinder timely repayments. Typically offered after 6 months of non-payment of EMIs, this option involves the bank considering the outstanding amount settled, particularly if the borrower has experienced a significant illness, accident, or unexpected job loss.

If the loan is due in over 3 months, it is considered a non-performing asset. After 6 to 9 months of the due date of the EMI payment, the bank may write off the loan. If an EMI settlement occurs before such a written-off, it is termed ‘settled’. If the EMI settlement happens after the write-off, it is considered a ‘post-write-off settlement’ in the individual’s credit report. In either case, it impacts the borrower’s credit score.

How Does a Loan Settlement Impact the CIBIL Score?

Loan settlement leads to a significant drop in your CIBIL score of up to 100 points, potentially affecting future loan applications for up to 7 years. When a bank writes off a portion of the outstanding loan amount and offers a one-time settlement, this information is reported to credit bureaus like CIBIL. Unlike a closed account, a settled account is marked in the credit report, causing a deduction in the CIBIL score.

How Can Borrowers Deal with a Loan Settlement?

Here are some things you can do when faced with such a difficult situation:

  • Explore Alternatives 

Prioritise other options before considering a one-time loan settlement to mitigate the negative impact on your CIBIL score and future loan applications. These include debt consolidations, refinancing, and balance transfers.

  • Asset Liquidation

Attempt to liquidate assets like property or securities from your portfolio as an alternative.

  • Seek Support from Family or Friends

If selling assets is not feasible, consider seeking financial assistance from family or friends to bridge the financial gap.

  • Negotiate with the Bank

Initiate discussions with the bank to explore possibilities like extending the repayment period or negotiating a temporary waiver of interest.

  • Utilise Collateral or Insurance

If applicable, consider exploring the collateral options or loan insurance to secure the debt and potentially avoid a settlement.

  • Settlement as the Last Option

Consider a one-time settlement as the last resort due to its enduring negative impact on credit scores and future loan applications.

Read More

What Can Be Done to Remove Loan Settlement Status from the CIBIL Credit Report?

Once a settlement is marked on the credit report, removing it becomes challenging. However, borrowers can take steps to mitigate the impact and improve their creditworthiness over time:

  • Maintain Financial Discipline: Consistently practising good financial habits, like timely bill payments and responsible credit card usage, can gradually improve the credit score

  • Repay Other Loans: Repaying other outstanding loans promptly can help boost the credit score and offset the negative impact of the settlement

  • Clear Credit Card Dues: Ensuring no overdue payments on credit cards contributes positively to rebuilding creditworthiness

  • Check Credit Report Regularly: Monitoring the credit report allows individuals to track improvements and identify any discrepancies that may need attention


Opting for a one-time settlement should be the last resort due to its adverse effects on the CIBIL score. Exploring alternative options, such as negotiating loan terms or seeking an interest waiver, is advisable. Having a contingency plan in place when getting a loan can also help navigate unexpected financial challenges without resorting to settlements.


Can I remove the settlement from the CIBIL credit report?

Yes, by paying the complete outstanding amount and receiving a no-objection certificate (NOC) from your lender, the settlement can be removed from your credit report.

Does CIBIL score increase after closing a loan?

Closing a loan positively affects the credit score as there is a decrease in the debt-to-income (DTI) ratio. However, the impact varies based on individual financial behaviour and credit history.

How long does a loan settlement stay in the CIBIL credit report?

A settlement can stay on the credit report for up to 7 years, impacting the credit score during this period.

Does a one-time settlement affect the CIBIL score?

Yes, a one-time settlement negatively affects the CIBIL score, leading to a potential drop of up to 100 points.

Loan Offer
Download App
Credit Score